‘Tis the season to be merry, but no one wants to unexpectedly gift the Australian Tax Office (ATO) during the holidays. To help you avoid unnecessary taxes and stay on the ATO’s good side this festive season, here are some useful tips:
1. Spontaneous Team Gifts
When giving presents to your employees, keep it unplanned and impulsive. According to the minor benefit threshold, gifts under $300 won’t incur Fringe Benefits Tax (FBT) at a high rate of 47%. Steer clear of monthly subscriptions or multiple gift vouchers totalling $300 or more per person. Remember, the most appreciated gift holds personal significance. Consider individual preferences and add a heartfelt message to go beyond generic presents.
2. The FBT Christmas Party Sting
To avoid FBT on your work Christmas party, consider hosting it in the office on a workday. This way, regardless of the amount spent per person, FBT is unlikely to apply. Additionally, taxi travel between the workplace and employees’ homes is exempt from FBT, making it easier for those who have enjoyed Christmas cheer. However, if the party is held elsewhere, keep the per person cost below $300 to avoid FBT. Note that if no FBT is payable, the business won’t be able to claim deductions or GST credits related to party expenses.
3. Skip Client Lunches, Opt for Thoughtful Gifts
Entertaining clients during Christmas isn’t tax deductible, and you can’t claim back the GST. Instead, consider gifting thoughtful presents aligned with their interests or needs. Gifts are tax deductible as long as they aren’t considered entertainment. Going the extra mile to personally deliver the gift to your most valued customers can make a bigger impact. If budget constraints arise, prioritize investments in customers who provide the most value to your business.
4. Charitable Donations: Cash is King!
If you plan to donate to charities, cash is the preferred choice. Cash donations spare them the effort of handling merchandise or other items. From a tax perspective, cash donations allow you to claim a deduction for the entire amount. Make sure the charity you wish to support is a deductible gift recipient (DGR) listed on the Australian Business Register. Be aware that purchasing merchandise or participating in auctions may not qualify for tax deductions.
5. Christmas Bonuses
If you’re giving cash bonuses to your team, be aware that these will be taxed similarly to salary and wages. A PAYG withholding obligation will be triggered, and the bonus will be subject to the superannuation guarantee provisions, unless it specifically relates to overtime work.
Remember, these tips serve as general guidance, but it’s always recommended to consult a tax professional who can provide advice tailored to your specific circumstances.
Simple Christmas Tax Table
To simplify your understanding, here’s a quick guide to the tax impact of various Christmas celebrations*:
| Exempt from FBT? | Tax deductible | GST credits | |
| Christmas party on employer premises on a weekday | |||
| Employees | Y | N | N |
| Associates of employee (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | N | N |
| Christmas party (employer premises on a weekend or external venue) | |||
| Employees | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Associates (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | N | N |
| Christmas gifts (assuming the gift doesn’t involve entertainment) | |||
| Employees | If <$300 per head | Y | Y |
| Associates (spouses etc.) | If <$300 per head | Y | Y |
| Customers | N/A | Y | Y |
| Christmas lunch with customer at external venue | |||
| Employees | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Associates (spouses etc.) | If <$300 per head | If $300 or more per head | If $300 or more per head |
| Customers | N/A | N | N |
